The recent Covid-19 pandemic has sent stock markets across the world reeling. US futures and Asian stocks tanked as policymakers worldwide took dramatic steps to cushion the economic blow caused by the outbreak.
The US Federal Reserve and Bank of England slashed interest rates to a historic low of near-zero, with the former launching a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus.
Investors are having concerns over the volatility of the property markets, as many countries go into full or partial lockdown to deal with the spread of the coronavirus.
But how much of an impact could current health fears actually have on house prices? The stock markets have fallen dramatically, but compared to property, stocks are largely driven by sentiment.
What’s the outlook for Australian property in 2020?
With a strong start to the year, Australia’s property market is looking bright for investors once again. We expect house prices to rise substantially this year, led by double-digit gains in Sydney and Melbourne.
Australia prices are forecasted to be led by double-digit gains in Sydney and Melbourne
Having made a rapid comeback in recent months, home price gains are forecasted to reach as high as 15% in Melbourne and 14% in Sydney in 2020. The other Australian capital cities are expected to have low to mid single-digit price increases — up to 7% in Hobart, 6% in Canberra, 5% in Perth and Brisbane, and 3% in Adelaide.
Historically low interest rates, strong population growth and tight supply of housing are providing support for price growth. Sydney and Melbourne, in particular, are tipped to surpass their previous house price records towards the end of 2020.
Prior to the slump of the last two years, house prices were at their highest in 2017, with the average house costing $859,500 in Melbourne, while Sydney’s broke the 7-figure mark at a staggering $1.05 mil.
Australia’s economic growth is expected to pick up this year, but risks to that include the recent global outbreak of the Covid-19 virus, and damage from the bushfire crisis.
The Reserve Bank has already taken steps to boost a flagging economy, having cut rates late last year to a record low of 0.75%. Economists have predicted further cuts this year to stimulate growth and increase employment.
Demand from a growing population
Australia has one of the highest population growth rates in the developed world. The World Bank puts it at fifth place behind Iceland, Luxembourg, New Zealand and Israel, although the first four are significantly smaller countries.
The growth in population comes mostly from migration, which accounted for 62% of total growth, according to latest figures from the Australian Bureau of Statistics (ABS).
Although the number of residents continues to go up, housing supply has decreased. The number of completions declined severely last year, and construction activity is expected to remain weak going towards 2020/21, which will fuel a higher demand for housing.
While interest rate serviceability thresholds for most borrowers has been reduced, lenders are expected to maintain their more conservative approach towards assessing borrower income and expenses.
Hence, although a market rebound is expected, it is unlikely that we will see a repeat of the surge that lifted prices by about 75% in Sydney and 65% in Melbourne from 2013–2017.
Melbourne is the clear winner in capital growth over the last 15 years (Image: abc.net.au)
Currently, the favourable exchange rate is opening a window of opportunity for Malaysian investors. The Australian dollar fell to a 10-year low against the Malaysian ringgit in February 2020, at RM 2.74 to the dollar.
With the cheaper exchange rate, investment property in Australia is more affordable.
Here is our investor’s pick of Australian cities for 2020:
Melbourne (Victoria)
Australia’s star performer, this state has the highest economic and population growth of the nation. More than any other city in the country, Melbourne sees a continuing increase in migrants each year. Its present population of 5 million is not far off from Sydney’s 5.2 million, and is set to replace it as Australia’s largest city in the next few years.
House prices made a comeback at the end of 2019, attributable to lower interest rates and easier credit conditions. Melbourne rose a total of 8.2% in the year to Jan 2020.
The demand for housing in Melbourne will increase due to the continued migration and tightening supply. This will support the rental market and push values higher.
Vacancy rates, historically lean in this city, are at a tight 2.1% according to data in as recent as January. Although Melbourne has the largest supply pipeline of apartments of all the capital cities, this has significantly shrunk over the past two years. The number of starting projects has decreased, and we have seen several sites converted to other uses, like hotels, offices and purpose-built student accommodation.
Sydney (New South Wales)
Sydney’s sentiment and market activity have picked up in recent months, and demand continues to improve on the back of lower interest rates and easier credit conditions.
House prices went up by 7.9% in the year to Jan 2020, and auction clearance rates are hovering at around 70%.
The city saw a period of strong supply that reached its peak in 2018. Supply has since dropped and it is likely Sydney will fall into a position of undersupply for the next two years, causing rentals to stabilize, and support price growth.
Infrastructure spending and increased commercial construction activity will bolster economic growth in Sydney over the next few years, with projects like the $45 bil WestConnex and $12 bil Sydney Metro well underway.
Brisbane (Queensland)
Brisbane’s population growth has increased over the past few years and is expected to remain strong, growing by about 2% annually.
Housing remains very affordable compared to Sydney and Melbourne. The recent drop in house prices here has been quite shallow compared to the big two cities, with local values only 2.4% below their peak.
Supply is already very thin, and there are fears of undersupply in the coming years, especially as the population continues to expand. Increased infrastructure spending from key inner city projects such as the $3.6 bil Queens Wharf and $5.4 bil Cross River Rail are expected to support jobs growth, migration and housing demand.
Vacancy rates have fallen to 2.4% in Jan 2020 since their 4.1% peak at the end of 2016. The improving rental market, with relatively high yields, is expected to draw more investor interest this year.
Property values of Australia’s state capitals as of Dec 2019 (Source: Domain)
Perth (Western Australia)
After a long decline since 2014, property in Perth has become one of the most affordable in Australia. Vacancy rates have also fallen dramatically to 2.1% early this year since peaking at 5.5% in 2016, indicating a ripe environment for growth.
Early in 2019 we saw the state government follow the trend to introduce a stamp duty surcharge for foreign buyers, but this was pulled back by the announcement of a stamp duty rebate just a few months later.
The stamp duty rebate is limited to buyers of off-the-plan apartments, and will last until the end of this year. Investors should take advantage of this window to benefit from the stamp duty savings.
Perth’s local economy is expected to bounce back strongly over the next few years with a recovery in the mining industry, which will boost jobs growth, migration and housing demand.
Article by Ian Choong; Edits by VP
If you are looking for property in the cities of Sydney, Melbourne, Perth, Brisbane and more — fill out the form below, give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com.
It seems like the worst is over for the Australian residential property market, with home values back on the rebound.
In the 3 months to October, values surged by 2.9% nationally, with top performer Melbourne rising by an astounding 5.5%. Sydney came in second at 5%, while third-placed Canberra rose 2.4%.
Melbourne & Sydney experienced its strongest auction showing in almost 2 years.
Good news for the Australia Property Investment market — after another successful weekend of auctions, the worst appears to be finally over for the Sydney and Melbourne property markets.
Across the weekend, 78% of all Sydney and 74% of Melbourne homes were sold, according to real estate platform Domain.
Thinking of putting your cash into overseas property investment, but feeling a bit wary about it? Naturally, a big decision like this needs to be examined with much care and thought.
But let us catch your attention for a moment and show you how investing in overseas property can help you kill two birds with one stone.
The recent election ‘upset’ in Australia is expected to provide a much needed boost to the country’s housing market, spiking a rise in interest for Australia property investment.
Foreign Currency Can Be Your Aide with UK Property Investment
Hedge foreign currency wisely and make more returns on your investment, not just in stocks, but also in property such as Australia and UK property investment.
With 2019’s mediocre outlook for the local property market, Malaysian investors are turning to other avenues for growth. One area that has come to the forefront is the international property market.
Institutional investors are typically the biggest players in the international property investment space. Of late, however, more individual investors looking for rewarding returns, have been buying into foreign real estate.
As an investor, the key to making a profit is to understand your investments.
International investments differ in some ways from domestic investments. An important thing to note in international investments is that one of the largest impacts on your returns will be from currency fluctuation.
Investing internationally also means that you are actually making two separate investments — you are not only investing in the currency, but also the investment itself.
Example 1
Let’s say you bought RM1,000 worth of Apple shares in the US last year. This turned out to be a bad move, as Apple’s new phone sales were disappointing and the stock price dropped by 10%. You might think that your investment is only worth RM900 now.
You have an urgent need for cash and decide to sell your shares, even though the stock price went down. Strangely enough, you get back RM1,000, instead of the RM900 you were expecting to receive.
It turns out that the reason you were able to recoup your RM1,000 was because the US dollar appreciated against the ringgit by 10% over the period of your investment.
From the American investors’ point of view, this would have been a bad investment, as they would only have received 90% of what they put in. But, as a Malaysian investor, you benefited from the currency which hedged your investment.
Where currency hedges a poor investment
Example 2
You also bought RM1,000 worth of Amazon shares in the US, which was a better investment because their stock price increased by 10%. Now, since the US dollar appreciated against the ringgit by 10% during the same period, you made a total gain of 20%, making your investment now worth RM1,200.
Where currency multiplies your returns
The above example illustrates how currency effects help in portfolio diversification. Foreign exchange rate exposure doesn’t necessarily lead to higher risk.
Hedging the Currency & UK Property Investment: When & How
Stronger and more mature economies like the US and the UK tend to bounce back quickly after a recession. Developing countries, however, are more likely to take longer to recover economically from risks such as ongoing political instability.
It’s a good time to invest while your target currency is low because appreciation will multiply your returns. The following chart illustrates how the British pound and the US and Australian dollars performed against the ringgit over the past 24 years:
Yearly averages of GBP, USD & AUD against MYR (1995-2019). If you had placed your money into UK property investment, imagine the returns on your investment today when you combine capital growth and currency growth.
In the above chart you will see that these currencies achieved a similar peak growth historically, with the British pound having a poorer showing right now due to Brexit, as in the table below:
The UK Pound is at a low right now.
An analysis of the pound sterling shows a large drop after 2007, correlating with the 2007 global financial crisis (which wiped out the infamous Lehman Brothers). The pound went on to recover after 2013, but declined again after the Brexit announcement in 2016.
Watch the Pound for UK Property Investment
Presently, the pound remains weak due to the uncertainty of the UK’s future relationship with the EU. However, experts predict the pound will rise significantly following the confirmation of a trade deal.
Going back to our earlier examples of how currency exchange affects investments, this is a great opportunity for investors to take advantage of the pound’s weak state. If you buy UK property investment now when the pound is low, the subsequent rise in the value of the sterling can increase your returns greatly.
The fundamentals of the UK residential property market are strong — due to the critical shortage of housing supply in the face of rapidly rising demand — which will ensure continued steady capital and rental growth.
As an example, let’s consider a £240,000 house in Manchester, which achieves a conservative 5% rental yield and 5% capital growth per year. In 5 years’ time, the house would be worth £306,308 and you, as a landlord, would have collected £69,623 in rents. This gives an impressive 57% ROI, without taking into account currency fluctuations. If the pound rises by 10% during that period, your total ROI would shoot up to an amazing 72% after conversion.
A £240,000 property after 5 years
We urge budding UK property investors to look at developing cities, especially those in the Northern Powerhouse region where large amounts of Government money has been invested into infrastructure and commercial development. These regional cities have showed strong growth recently, with room to move upwards. This means UK property investment provides good potential for high yields with lower risk.
Article by Ian ChoongEdits by Vivienne Pal & Jagdeep Kaur
The British pound is set to rise quickly, which means property investors can get better returns by buying now. Don’t miss out! If you are looking for UK property investment in the cities of London, Manchester, Birmingham and more — give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
If you would like to read more on UK property investment, check out our Investment Guide here.
